Pooled-DNA sequencing strategies enable fast, accurate, and cost-effect detection of rare variants, but current approaches are not able to accurately identify short insertions and deletions (indels), despite their pivotal role in genetic disease. Furthermore, the sensitivity and specificity of these methods depend on arbitrary, user-selected significance thresholds, whose optimal values change from experiment to experiment. Here, we present a combined experimental and computational strategy that combines a synthetically engineered DNA library inserted in each run and a new computational approach named SPLINTER that detects and quantifies short indels and substitutions in large pools. SPLINTER integrates information from the synthetic library to select the optimal significance thresholds for every experiment. We show that SPLINTER detects indels (up to 4 bp) and substitutions in large pools with high sensitivity and specificity, accurately quantifies variant frequency (r = 0.999), and compares favorably with existing algorithms for the analysis of pooled sequencing data. We applied our approach to analyze a cohort of 1152 individuals, identifying 48 variants and validating 14 of 14 (100%) predictions by individual genotyping. Thus, our strategy provides a novel and sensitive method that will speed the discovery of novel disease-causing rare variants.